ITO, Ward - 2, Suri, Birbhum V. M/s. Hotel Tara, Birbhum

ITA 318/KOL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4326 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 27-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K TIBRAWAL
• Assessee Lawyers: SHRIARUP CHATERJEE JCITSRDR
• Keywords: Search and seizure; Document seized; Principle of natural justice; Initiation of penalty proceedings; Documents seized
• Section: 143(3); 153A; 131; 132; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.318/KOL/2014 ASSESSMENT YEARS:2010-11 ABHISHEK GOYAL DIRECTOR B.D CASTINGS PVT. LTD. HARIYANA NIVAS 40B, VIVEKANANDA ROAD, KOLKATA-700 007 [ PAN NO ADEPG 4650 K ] / V/S . ACIT, CC-XII KOLKATA /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI A.K. TIBRAWAL, FCA /BY RESPONDENT SHRIARUP CHATERJEE, JCIT-SR-DR /DATE OF HEARING 15-09-2016 /DATE OF PRONOUNCEMENT 26-10-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KOLKATA DATED 27.12.2013. ASSESSM ENT WAS FRAMED BY ACIT, CC- XII, KOLKATA U/S 153/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29.12.2011 FOR ASSE SSMENT YEAR 2010-11. SHRI A.K. TIBREWAL, LD. AUTHORIZED REPRESENTATIVE A PPEARED ON BEHALF OF ASSESSEE AND SHRI ARUP CHATTERJEE, LD. DEPARTMENTAL REPRESEN TATIVE APPEARED ON BEHALF OF REVENUE. 2. SOLE ISSUE RAISED BY ASSESSEE IN HIS APPEAL IS T HAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY IMPOSI NG PENALTY OF 7,10,700/- U/S 271(1)(C) OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND:- ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 2 1) THAT THE LD. CIT(A) ERRED IN CONFIRMING PENALTY AMOUNTING TO RS.7,10,700/- LEVIED BY THE AO UNDER SEC.271(1)(C) OF THE INCOME TAX ACT, 1961. IN THE CASE OF THE ASSESSEE, PROCEEDING WAS I NSTIGATED U/S. 153C OF THE ACT AND THE FINANCIAL YEAR HAS NOT ENDED ON THE DAT E OF SEARCH. AS PER PROVISION OF THE ACT, IN THE CASES WHERE THE YEAR H AS NOT ENDED OR THE DUE DATE OF FILING OF RETURN HAS NOT EXPIRED ON THE DATE OF SEARCH, PENALTY (IF ANY) MAY BE LEVIED ONLY UNDER SEC. 271AAA OF THE ACT. THE PENAL TY LEVIED BY THE AO UNDER SEC. 271(11)(C) & CONFIRMED BY THE LD. CIT(A) IS BA D IN LAW AND NEED TO BE CANCELLED. 3. FACTS IN BRIEF ARE THAT ASSESSEE IN THE INSTANT CASE IS AN INDIVIDUAL AND ENGAGED IN BUSINESS OF PETROLEUM PRODUCTS. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F 15,78,480/- BUT ASSESSMENT WAS FRAMED U/S. 154/143(3) OF THE ACT AT A TOTAL INCOME OF 38,78,480/-. THERE WAS A SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT CONDUCTED IN FORTUNE ISPAT GROUP OF CASE ON 16.02.2010 AND SUBSEQUENT D ATES. DURING THE SEARCH PROCEEDINGS CASH PAYMENT FOR 2,09,03,682/-WAS FOUND IN TERMS OF SEIZED DOCUMENTS MARKED AS FI/OFFICE/6 & FI/OFFICE/7WHICH WAS OWNED BY ASSESSEE IN HIS STATEMENT DISCLOSURE PETITION U/S. 132(4) OF THE ACT. ACCORDI NGLY, NOTICE U/S. 153C R.W.S. 153A WAS ISSUED UPON ASSESSEE. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT HE WAS ENGAGED IN HIS PERSONAL CAPAC ITY IN THE BUSINESS OF TRADING OF PIG IRON AND PAID A SUM OF 2,09,03,628/-. THE ASSESSEE OFFERED 5% OF SUCH RECE IPT AS INCOME EARNED ON THE UNDISCLOSED TRANSACTIONS OF SA LE AND PURCHASE OF PIG IRON. THE ASSESSEE ALSO OFFERED A SUM OF 10 LAKH AS INVESTMENT IN THE UNDISCLOSED BUSINESS B UT AO TREATED THE UNDISCLOSED INVESTMENT OF 23 LAKH AND ACCORDINGLY UNDISCLOSED INCOME WAS ASSESSED AT 33,45,181/-. AT THE TIME OF ASSESSMENT, AO HAS INIT IATED PENALTY PROCEEDINGS U/S 271(1) OF THE ACT WHICH WA S CONFIRMED BY ASSESSING OFFICER IN ITS PENALTY ORDER VIDE DATED 28.06.2012. THE AO, IN HIS PENALTY ORDER HAS LEVIED PENALTY FOR 7,10,700/- @ 100% OF THE AMOUNT TAX SOUGHT TO BE EV ADED U/S. 271(1) OF THE ACT. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT PENALTY IN THE INSTANT CASE, IS COVE RED BY THE PROVISION OF SEC. 271AAA ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 3 OF THE ACT AND SAME CANNOT BE LEVIED U/S. 271(1)(C ) OF THE ACT. HOWEVER, LD. CIT(A) DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING AS U NDER:- 5. 1 HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER AS WELL AS THE PENALTY ORDER. I HA VE ALSO GONE THROUGH THE RELEVANT PROVISIONS OF THE I.T. ACT AND THE JUDICIA L PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. THE FACTS OF THE CASE HAS ALREADY BEEN DISCUSSED AS ABOVE, THAT THE SEARCH OPERATION U/S 132 OF THE ACT WAS CO NDUCTED IN THE CASE OF FORTUNE ISPAT PVT. LTD. ON 16.02.2010. DURING THE C OURSE OF SEARCH, CERTAIN TRANSACTIONS AND DOCUMENTS RELATING TO THE APPELLAN T WERE FOUND AND SEIZED. THE APPELLANT DECLARED A SUM OF RS.10,45,181/- FOR TAXATION IN HIS HANDS FOR A.Y. 2010-11. SINCE, THE DECLARATION OF THE ADDITIO NAL INCOME WAS MADE IN THE HANDS OF APPELLANT AND SINCE THE APPELLANT WAS THE PERSON OTHER THAN THE PERSON IN WHOSE CASE SEARCH OPERATION WAS INITIATED , THE AO ISSUED NOTICE U/S 153C OF THE ACT IN THE CASE OF APPELLANT FOR A.Y. 2 004-05 TO 2009-10 AND ACCORDINGLY, THE ASSESSMENT WERE COMPLETED U/S 153C /143(3) OF THE ACT. SINCE, THE YEAR UNDER APPEAL I.E. A.Y. 2010-11 WAS THE SPE CIFIED YEAR FOR WHICH THE PREVIOUS YEAR WAS NOT ENDED AS ON THE DATE OF SEARC H, THE APPELLANT FILED THE RETURN OF INCOME U/S 139(1) ON 26.07.2010 DECLARING TOTAL INCOME OF RS.15,78,480/-. THE INCOME RETURNED BY THE APPELLAN T INCLUDES THE ADDITIONAL INCOME OF RS.10,45,181/- DECLARED BY HIM IN THE COU RSE OF STATEMENT RECORDED U/S 131 OF THE ACT. THE AO COMPLETED THE ASSESSMENT FOR A.Y. 2010-11 ON 27.12.2011 U/S 143(3) OF THE ACT AND ASSESSED THE T OTAL INCOME AT RS.25,78,480/-. SUBSEQUENTLY, THE ORDER WAS RECTIFI ED U/S 154 ON 29.12.2011 AND ASSESSED THE TOTAL INCOME AT RS.38,78,480/- . T HUS, THE AO HAD MADE ADDITION OF RS.23 LAKHS TO THE RETURNED INCOME. IN THE ASSESSMENT ORDER, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. IT IS OBSERVED THAT DURING THE COURSE OF PENALTY PROCEEDINGS, IT WAS CONTENDED BEFORE THE AO THAT IN THE CASE OF APPELLANT THE PROCEEDINGS WERE INITIATED U/ S 153C OF THE ACT AND THE PROCEEDINGS U/S 153C ARE EQUIVALENT TO PROCEEDINGS INITIATED U/S 153A AND, THEREFORE, IN THE CASE OF APPELLANT FOR A.Y. 2010-1 1, BEING THE SPECIFIED YEAR, THE PENALTY PROCEEDINGS, IF AT ALL APPLICABLE, WOUL D BE U/S 271AAA AND NOT U/S 271(1)(C) OF THE ACT. HOWEVER, THE CONTENTION OF TH E APPELLANT WAS NOT ACCEPTED BY THE AO FOR THE REASON AS MENTIONED IN THE PENALT Y ORDER AND HE IMPOSED THE PENALTY U/S 271(L)(C) OF THE ACT. AGAIN, IN THE COU RSE OF APPELLATE PROCEEDINGS, THE APPELLANT REITERATED HIS SUBMISSION MADE BEFORE THE AO THAT IN HIS CASE, IF AT ALL, PENALTY PROVISIONS ARE APPLICABLE, THAT SHO ULD BE U/S 271AAA AND NOT U/S 271(L)(C) BECAUSE IN HIS CASE ASSESSMENTS WERE COMP LETED U/S 153C/143(3) OF THE ACT. ON CAREFUL CONSIDERATION OF THE FACTS AND IN LAW, I AM NOT INCLINED TO AGREE WITH THE SUBMISSION OF THE APPELLANT THAT IN HIS CASE, FOR THE SPECIFIED YEAR THE PENALTY PROCEEDINGS WERE REQUIRED TO BE IN ITIATED U/S 271AAA OF THE ACT. THE HEADING OF SECTION 153A IS ' ASSESSMENT IN CASE OF SEARCH OR REQUISITION ' AND THE PROVISIONS ARE APPLICABLE IN A CASE OF A PERSON WHERE SEARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF A CCOUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED UNDER SECTION 132A. WH EREAS, THE HEADING OF SECTION 153C IS ' ASSESSMENT OF INCOME OF ANY OTHER PERSON ' SIMILARLY, THE ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 4 HEADING OF SECTION 271AAA OF THE ACT IS ' PENALTY WHERE SEARCH HAS BEEN INITIATED ' THE PROVISIONS OF SUB-SECTION (1) OF SECTION 271A AA READS AS UNDER:- THE ASSESSING OFFICER MAY, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, DIRECT THAT, IN A CAS E WHERE SEARCH HAS BEEN INITIATED UNDER SECTION 132 ON OR AFTER THE 1 ST DAY OF JUNE, 2007, THE ASSESSEE SHALL PAY BY WAY OF PENALTY, IN ADDITION T O TAX, IF ANY, PAYABLE BY HIM, A SUM COMPUTED AT THE RATE OF TEN PERCENT O F THE UNDISCLOSED INCOME OF THE SPECIFIED PREVIOUS YEAR. IN THE CASE OF APPELLANT, ON FACTS, THERE IS NO DIS PUTE THAT NO SEARCH UNDER SECTION 132 HAS BEEN INITIATED AND, THEREFORE, THE PROVISIONS OF SECTION 271AAA ARE NOT APPLICABLE IN HIS CASE. IN VIEW OF ABOVE, I T IS HELD THAT THE AO HAS CORRECTLY INITIATED THE PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT INSTEAD OF U/S. 271AAA OF THE ACT. THE ACTION OF THE AO IN THI S REGARD IS UPHELD AND THE GROUND NO. 1 IS DISMISSED. 5.1 COMING TO THE MERITS OF IMPOSITION OF PENALTY U /S 271(1)(C) OF THE ACT, I AM OF THE OPU1ION THAT THE AO HAS RIGHTLY IMPOSED THE PENALTY ON THE ADDITION OF RS.23 LAKH MADE BY HIM IN THE COURSE OF ASSESSMENT PROCEEDINGS ON ACCOUNT OF INITIAL CAPITAL. THE CLAIM OF THE APPELLANT THAT HE HIMSELF HAS ADMITTED ADDITIONAL INCOME OF RS.I0 LAKHS ON ACCOUNT OF INIT IAL CAPITAL AT THE TIME OF ASSESSMENT PROCEEDING IS NOT CORRECT BECAUSE HE AD MITTED THE SUM OF RS.I0 LAKH ONLY WHEN HE WAS AGAIN CONFRONTED WITH THE SEI ZED DOCUMENTS IN THE COURSE OF ASSESSMENT PROCEEDINGS. HE DID NOT ADMIT ANY INCOME FOR INITIAL CAPITAL AT THE TIME WHEN HIS STATEMENT WAS RECORDED BY THE DDIT (LNV.). AT THAT TIME HE ACCEPTED ONLY THE PROFIT ON PIG IRON TRADIN G ACTIVITY THOUGH HE WAS VERY WELL AWARE THAT HE HAD EMPLOYED HIS UNDISCLOSED INC OME AS INITIAL CAPITAL TO CARRY ON THE TRADING BUSINESS ACTIVITY. FURTHER, EV EN AT THE TIME OF ASSESSMENT PROCEEDINGS, HE DID NOT ADMIT CORRECT AMOUNT OF INI TIAL CAPITAL AND TRIED TO ESCAPE BY OFFERING SUM OF RS.10 LAKHS ONLY WHEREAS HE WAS AWARE THAT AS PER THE SEIZED DOCUMENTS HE HAD MADE PAYMENT OF RS.23 L AKHS ON A SINGLE DAY I.E. ON 12.01.2010. THE AO WAS ABSOLUTELY CORRECT IN HIS OBSERVATIONS THAT AS TO HOW THE APPELLANT COULD MADE PAYMENT OF RS.23 JAKH ON 12.01.2010 IF THE AMOUNT OF INITIAL CAPITAL WAS RS.L0 LAKH. THUS, I A M OF THE OPINION THAT THE APPELLANT HAS TRIED AT EVERY STEP TO AVOID PAYMENT OF TAX ON THE UNDISCLOSED INITIAL CAPITAL UNLESS THE FACT WAS BROUGHT TO THE LIGHT BY THE AO. UNDER THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE DISCLOSUR E OF RS.10 LAKH BEING THE AMOUNT OF INITIAL CAPITAL OFFERED IN THE COURSE OF ASSESSMENT WAS VOLUNTARY AND IN GOOD FAITH AS CLAIMED BY THE APPELLANT. IN VIEW OF ABOVE, I AM OF THE OPINION THAT THE AO HAS CORRECTLY IMPOSED THE PENALTY US/S 271(1)(C) OF THE ACT AT RS.7,10,700/-. THE PENALTY IMPOSED BY THE AO IS CON FIRMED. THE GROUND NO.2 IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN APPEAL BEFORE US. ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 5 5. BEFORE US LD AR SUBMITTED THE COPY OF NOTICE ISS UED U/S. 274 R.W.S 271(1)(C) OF THE ACT AND STATED THAT NOTICE IS DEFECTIVE AS I T DOES NOT CLEARLY STRIKE OUT THE CHARGE OF PENALTY WHETHER IT HAS BEEN INITIATED PENALTY CA N BE INITIATED EITHER FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF I NCOME. THE NEXT ARGUMENT OF THE LD. AR WAS THAT THE CASE O F THE ASSESSEE IS COVERED FOR THE PENALTY PROCEEDINGS UNDER SECTION 271AAA OF THE ACT AS THE PRESENT CASE PERTAINS TO SPECIFIED YEAR. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE RE CORDING OF INTIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) IS SUFFICIENT E NOUGH TO SATISFY THE REQUIREMENT OF THE COMPLIANCE OF LAW. HE RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF M. SAJJANRAJ NAHAR & ORS. VS. CIT 283 ITR 230 (MAD). THE LD. DR ALSO RELIED IN THE ORDER OF HONBLE HIGH COURT OF ALLAHA BAD IN THE CASE OF NAINU MAL HET CHAND VS. CIT 294 ITR 185 (ALL). THE LD. DR ALSO RELIED IN THE ORDER OF HONBLE SUPREME COURT IN THE CASE OF D.M. MANASVI VS. CIT 86 ITR 557 (SC). HE VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT THE NOTICE ISSUED U/S 274 OF THE ACT BY THE AO FOR LEVYING OF THE PENALTY IS DEFECTIVE IN S O FAR IT DOES NOT SPELL OUT THE SPECIFIC CHARGE FOR PENALTY. THE SPECIFIC CHARGE FOR THE PEN ALTY WHETHER IT IS LEVIED FOR THE CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME MUST EMANATE FROM THE PENALTY NOTICE. IN THE ABSENCE OF SPECIFIC CHARGE I N THE NOTICE, THE SEVERAL COURTS HAVE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE INCLUDING T HE JURISDICTIONAL HIGH COURT WHICH IS BINDING ON US. THEREFORE, THE CASE LAWS OF VARIO US HONBLE HIGH COURTS CITED BY THE LD. DR ARE NOT BINDING ON THE ASSESSEE. BESIDES, TH ERE ARE OTHER HONBLE HIGH COURTS JUDGMENTS IN FAVOUR OF ASSESSEE WHICH ARE SUBSEQUEN TLY DISCUSSED IN THE ORDER. IN SUCH CIRCUMSTANCES, THE HONBLE APEX COURTS HAS HELD TO FOLLOW THE DECISION IN FAVOUR OF ASSESSEE IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW : ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 6 IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQU ENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN I NTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING P ROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION. IF IN CASE OF A TAXING PROVISION TWO REASONABLE CON STRUCTIONS ARE POSSIBLE, CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. SIMILARLY THE CASE CITED BY THE LD. DR OF HONBLE S UPREME COURT IN THE CASE OF D.M. MANASVI VS. CIT 86 ITR 557 IS DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE. AS THE ISSUE BEFORE THE HONBLE APEX COURTS WERE THE F OLLOWING : ' (1) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE PROCEEDING FOR THE IMPOSITION OF PENALTY WERE PROPERLY COMMENCED IN TH E COURSE OF ANY PROCEEDINGS UNDER THE ACT AS REQUIRED BY S. 271 OF THE IT ACT, 1961, FOR THE ASST. YRS. 1959- 60 TO 1962-63 ? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THERE WAS ANY MATERIAL OR EVIDENCE BEFORE THE TRIBUNAL TO HOLD THAT THE AS SESSEE HAD DELIBERATELY CONCEALED PARTICULARS OF HIS INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF SUCH INCOME AS REQUIRED BY S. 271(1)(C) OF THE ACT FOR T HE ASST. YRS. 1959-60 TO 1962-63 ?' THE ISSUE IN THE INSTANT CASE UNDER CONSIDERATION W HETHER THE SPECIFIC CHARGE FOR LEVYING THE PENALTY IS FOR CONCEALMENT OR FURNISHIN G INACCURATE PARTICULARS OF INCOME AND THE SAME SHOULD EMANATE FROM THE NOTICE ISSUED UNDER SECTION 274 OF THE ACT. THEREFORE WE ARE OF THE VIEW THAT THE CASE LAW OF A PEX COURT CITED BY THE LD. DR IS NOT RELEVANT TO THE INSTANT FACTS OF THE CASE. FOR HOLDING THAT THE NOTICE SHOULD SPEAK THE SPECIFIC CHARGE FOR THE LEVY OF THE PENALTY WE RELY IN THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. MANJUNATH A COTTON & GINNING FACTORY 359 ITR 565. THE RELEVANT IS OF THE JUDGMENT IS REPRODU CED BELOW : PENALTY U/S 271(1)(C) IS A CIVIL LIABILITY. MENS R EA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSING PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LI ABILITY. EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271(1)(C) IS A SINE QUA NON F OR INITIATION OF PENALTY PROCEEDINGS U/S 271. THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTHORITY OR REVISI ONAL AUTHORITY. EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CORRECTIONS MENTIONED IN SECTION 271(1)(C), AT LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOU LD BY A LEGAL FICTION CONSTITUTE ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 7 CONCEALMENT BECAUSE OF DEEMING PROVISION. EVEN IF T HESE CONDITIONS DO NOT EXIST IN THE ASSESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO I NITIATE PROCEEDINGS U/S 271(L)(C) IS A SINE QUA NON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). THE SA ID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMISSIONER. THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. IMPOSIT ION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF ASSESSMENT LEVYING TAX AND INTEREST AND HA S PAID TAX AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM TH E ASSESSMENT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILITY CAME TO B E ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE AO IN THE ASSESSMENT ORDER. ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLANAT ION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATI ON OFFERED IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED. IF THE EXPLANATIO N OFFERED, EVEN THOUGH NOT SUBSTANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE B ONAFIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMPOSED. THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECT ION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. IF THE AO HAS NOT RECORD ED ANY SATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDING S, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PR OCEEDINGS HAVE TO BE INITIATED BY THE APPELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY . NOTICE U/S 274 OF THE ACT SHOULD SPECIFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF I NCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME. SENDING PRINTED FORM WHERE A LL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIRE MENT OF LAW. THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE B ASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. TAKING UP OF PENA LTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS. THE PROCE EDINGS FOR IMPOSITION OF PENALTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT I S INDEPENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCORRECT PARTICULARS W OULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSES SEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATT ER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS IN VALID IN THE PENALTY PROCEEDINGS. ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 8 IN THE LIGHT OF WHAT WE HAVE STATED ABOVE, IT IS CL EAR THAT MERELY BECAUSE THE ASSESSEE AGREED FOR ADDITION AND ACCORDINGLY ASSESSMENT ORDE R WAS PASSED ON THE BASIS OF THIS ADDITION AND WHEN THE ASSESSEE HAS PAID THE TAX AND THE INTEREST THEREON IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THE CONCE ALMENT OF INCOME, IT CANNOT BE INFERRED THAT THE SAID ADDITION IS ON ACCOUNT OF CO NCEALMENT. MOREOVER, THE ASSESSEE HAS OFFERED THE EXPLANATION. THE SAID EXPLANATION I S NOT FOUND TO BE FALSE. ON THE CONTRARY, IT IS HELD TO BE BONAFIDE. IN FACT IN THE ASSESSMENT PROCEEDINGS THERE IS NO WHISPER ABOUT THESE CONCEALMENT. THE VERY FACT THAT THE ASSESSEE AGREED TO PAY TAX AND DID NOT CHALLENGE THE ASSESSMENT ORDER, IT IS C LEAR THE CONDUCT OF THE ASSESSEE CANNOT BE CONSTRUED AS MALA FIDE. THEREFORE, THE TR IBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDERS PASSED BY THE APPELLATE AUTHORITY AS WELL AS THE ASSESSING AUTHORITY. IN SO FAR AS THE IMPOSITION OF PENALTY IS CONCERNED , IT IS NOT IN ACCORDANCE WITH LAW. NO FAULT COULD BE FOUND WITH THE TRIBUNAL FOR DELET ING THE PENALTY. MERELY BECAUSE THE ASSESSEE AGREED FOR ADDITION AND ACCORDINGLY ASSESSMENT ORDER WAS PASSED ON THE BASIS OF ADDITION AND WHEN THE AS SESSEE HAS PAID THE TAX AND THE INTEREST THEREON IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THE CONCEALMENT OF INCOME, IT CANNOT BE INFERRED THAT THE SAID ADDITIO N IS ON ACCOUNT OF CONCEALMENT SO AS TO LEVY PENALTY U/S 271(1)(C). SIMILARLY WE RELY IN THE ORDER OF HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF SMT. PARAMA BASAK VS. CIT IN ITA 155 OF 2003 DATED 19.03.2015 WHERE IT WAS H ELD AS UNDER: - THE PENALTY PROCEEDINGS WERE STARTED AND APPROVED BY THE IMPUGNED JUDGMENT AND ORDER ON THE BASIS THAT THE CLAIM MADE BY THE ASSES SEE ON ACCOUNT OF BAD DEBT WAS NOT ALLOWED. IT IS NOT IN DISPUTE THAT THE AMOUNT OF DE BT HAD DULY BEEN WRITTEN OFF BY THE ASSESSEE; WHY WAS THE SAME NOT ALLOWED IS HOWEVER A MYSTERY TO US BUT BE THAT AS IT MAY, THE FACT REMAINS THAT THE CLAIM FOR BAD DEBT A FTER THE DEBT HAD BEEN WRITTEN OFF COULD NEVER BE A GROUND FOR INITIATING PENAL PROCEE DINGS. BEFORE INITIATING THE PENAL PROCEEDINGS THE ASSESSING OFFICER IS REQUIRED TO BE SATISFIED AS TO WHETHER ANY INCOME HAS BEEN CONCEALED OR ANY INADEQUATE PARTICULARS HA VE BEEN FURNISHED. SIMILARLY WE RELY IN THE ORDER OF HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. ARTI & SONS , IN GA. NO. 2682 OF 2014 , ITAT 129 OF 2014 DATED 10.09.2014 WHERE IT WAS HELD AS UNDER : HEARD MD. DHUDHORIA, LEARNED ADVOCATE FOR THE APPE LLANT. SINCE WE FIN D FROM THE ORDERS OF THE ASSESSING OFFICER OR THE CIT THAT THE RE IS NO ALLEGATION AGAINST THE ASSESSEE FOR CONCEALMENT OF PARTICULARS OF INCOME O R HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, WE ARE OF THE VIEW THAT THE LEARNED TRIBUNAL WAS JUSTIFIED IN PASSING THE ORDER UNDER CHALLENGE. THEREFORE, TH E APPLICATION AND APPEAL ARE DISMISSED. WE ALSO FIND THAT THE REVENUE HAS FILED THE SLP NO. 5281/2016 BEFORE THE HONBLE SUPREME COURT AGAINST THE JUDGMENT OF THE HONBLE H IGH COURT IN THE CASE OF CIT VS. ITA NO.318/KOL/2014 A.Y. 2010-11 ABHISHEK GOYAL VS. ACIT, C C-XII KOL. PAGE 9 MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (SC) WHICH WAS DISMISSED AS UNDER : WE DO NOT FIND ANY MERIT IN THESE PETITIONS. THE S PECIAL LEAVE PETITIONS ARE, ACCORDINGLY, DISMISSED. PENDING APPLICATIONS, IF ANY, STAND DISPOSED OF. IN VIEW OF ABOVE WE HAVE NO HESITATION IN HOLDING T HAT THE PENALTY PROCEEDINGS ARE INVALID IN VIEW OF THE AFORESAID DISCUSSIONS AS THE NOTICE ISSUED UNDER SECTION 274 OF THE ACT FOUND DEFECTIVE. 7. THE LD. AR BEFORE US ALSO CHALLENGED THE PENALT Y PROCEEDINGS INITIATED UNDER SECTION 271(1)(C) OF THE ACT ON THE GROUND THAT THE YEAR UNDER CONSIDERATION IS SPECIFIED YEAR IN TERMS OF THE PROVISIONS OF SECTIO N 271AAA OF THE ACT AND THEREFORE IT IS TO BE GOVERNED UNDER THE PROVISIONS OF SECTIO N 271AAA OF THE ACT. IN THIS REGARD, WE FIND THAT THE ASSESSEE HAS BEEN GIVEN RELIEF ON THE GROUND OF DEFECTIVE NOTICE ISSUED U/S 274 OF THE ACT. THEREFORE, WE ARE NOT INCLINED TO ADJUDICATE THIS ISSUE AT THIS TIME. IN VIEW OF THIS PENALTY IS NOT SUSTAINABLE IN THE I NSTANT CASE. HENCE THE ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 26/10/2016 SD/- SD/- (K.NARSIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ! - 26/10/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ABHISHEK GOYAL, DIRECTOR B.D. CASTING PVT. LTD. HARIYANA NIVAS 40B, VIVEKANANDA RO AD, KOLKATA-07 2. /RESPONDENT-ACIT,CC-XII, KOLKATA 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,